<PAGE> 1
LONG-TERM INVESTING IN A SHORT-TERM WORLD(SM)
SEMIANNUAL REPORT TO
SHAREHOLDERS FOR THE PERIOD
ENDED JANUARY 31, 2000
Provides long-term capital growth with
guaranteed return of investment on the
maturity date to investors who reinvest
all dividends and hold their shares to
the maturity date.
KEMPER TARGET EQUITY
2010 FUND
"... In our view, volatility isn't necessarily a
bad thing, for example, short-term volatility
can open up excellent opportunities for the
timely purchase and sale of stocks. ..."
[KEMPER FUNDS LOGO]
<PAGE> 2
CONTENTS
3
ECONOMIC OVERVIEW
5
PERFORMANCE UPDATE
8
LARGEST HOLDINGS
9
PORTFOLIO OF INVESTMENTS
13
FINANCIAL STATEMENTS
16
FINANCIAL HIGHLIGHTS
17
NOTES TO FINANCIAL STATEMENTS
AT A GLANCE
KEMPER TARGET 2010 FUND
TOTAL RETURNS*
FOR THE SIX-MONTH PERIOD ENDED JANUARY 31, 2000 (UNADJUSTED FOR ANY SALES
CHARGE)
<TABLE>
<S> <C>
.........................................................
KEMPER TARGET 2010 FUND 4.12%
.........................................................
</TABLE>
RETURNS ARE HISTORICAL AND DO NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURNS
AND PRINCIPAL VALUES WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED (IF BEFORE
MATURITY DATE), MAY BE WORTH MORE OR LESS THAN ORIGINAL COST.
* TOTAL RETURN MEASURES NET INVESTMENT INCOME AND CAPITAL GAIN OR LOSS FROM
PORTFOLIO INVESTMENTS, ASSUMING REINVESTMENT OF ALL DIVIDENDS. DURING THE PERIOD
NOTED, SECURITIES PRICES FLUCTUATED. FOR ADDITIONAL INFORMATION, SEE THE
PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION AND THE FINANCIAL HIGHLIGHTS
AT THE END OF THIS REPORT.
NET ASSET VALUE
<TABLE>
<CAPTION>
AS OF AS OF
1/31/00 7/31/99
.........................................................
<S> <C> <C>
KEMPER TARGET 2010 FUND $10.60 $10.96
.........................................................
</TABLE>
DIVIDEND REVIEW
DURING THE SIX-MONTH PERIOD ENDED JANUARY 31, 2000, KEMPER TARGET 2010 FUND
MADE THE FOLLOWING DISTRIBUTIONS PER SHARE:
<TABLE>
<CAPTION>
INCOME LONG-TERM
DIVIDEND CAPITAL GAIN
..........................................................
<S> <C> <C>
KEMPER TARGET 2010 FUND $0.3600 $0.43
..........................................................
</TABLE>
TERMS TO KNOW
BALANCE SHEET A condensed financial statement showing what a company owns, what
it owes and its stockholders' ownership interest, at a fixed point in time.
BENCHMARK A gauge of relative performance, often a broad market index. When
comparing the performance of a fund and a benchmark, it's important to note any
differences between the two. For instance, Kemper Target 2010 Fund invests only
a portion of its assets in large-cap stocks, while the S&P 500 is composed
entirely of stocks.
NARROW MARKET A period when only a few stocks drive the performance of the
overall market. Since 1998, the domestic stock market has generally been narrow,
with only a handful of large-cap growth and technology stocks contributing the
majority of gains.
VOLATILITY The characteristic of a security (such as a stock or bond), commodity
or market to rise and fall sharply in price within a short period of time. A
stock may be volatile due to company, industry, market or economic factors.
<PAGE> 3
ECONOMIC OVERVIEW
SCUDDER KEMPER INVESTMENTS, THE INVESTMENT MANAGER FOR KEMPER FUNDS, IS ONE OF
THE LARGEST AND MOST EXPERIENCED INVESTMENT MANAGEMENT ORGANIZATIONS IN THE
WORLD, MANAGING MORE THAN $290 BILLION IN ASSETS FOR INSTITUTIONAL AND CORPORATE
CLIENTS, RETIREMENT AND PENSION PLANS, INSURANCE COMPANIES, MUTUAL FUND
INVESTORS AND INDIVIDUALS. SCUDDER KEMPER INVESTMENTS OFFERS A FULL RANGE OF
INVESTMENT COUNSEL AND ASSET MANAGEMENT CAPABILITIES BASED ON A COMBINATION OF
PROPRIETARY RESEARCH AND DISCIPLINED, LONG-TERM INVESTMENT STRATEGIES.
DEAR KEMPER FUNDS SHAREHOLDER:
The end of the metaphorical millennium, it turns out, was not a disaster.
Instead, it was an excuse to party. And why not? As our technological revolution
gained critical mass, its vast potential came into better focus. Capital
spending on information technology didn't slow down; it accelerated. Inflation
remained dormant. The budget surplus nearly doubled, with the promise of oceans
of black ink yet to come. Even the government delivered good news: Its
statisticians toyed with the national accounts to reveal a more productive
economy. It's no wonder the prevailing sentiment could be summed up with the
quintessentially American yelp of glee: Yahoo!
With the potential Y2K crisis seemingly behind us, the main question hanging
over the economy has been how much the Federal Reserve Board will boost interest
rates to soak up extra liquidity caused by its pre-Y2K infusion of cash into the
economy. The Fed began that process on Feb. 2. Fearing that "increases in
demand" would foster "inflationary imbalances," the policymakers raised interest
rates by a quarter of a percentage point (0.25%). Later, in his Feb. 17
Humphrey-Hawkins testimony before the House of Representatives, Fed Chairman
Alan Greenspan made it clear that he was still concerned about the economy's
imbalances. We thus expect a quarter-point rate hike at the March 21 Fed
meeting, and another quarter-point increase in May.
Although some investors have expressed fear that the Fed's sucking cash out of
banks will jolt the financial system, we're more likely to see a slow winding
down, thanks to persistent low inflation. Yes, some prices are higher: Filling
up the SUV's gas tank definitely costs more. But the rate of inflation for
non-energy goods and services has actually slowed during the past year. Although
most analysts are worried that the reprieve won't last -- assuming that higher
commodity prices, a softer dollar and the scarcity of skilled workers will show
up as higher prices at the checkout counter -- we'd turn that worry on its head.
If inflation hasn't accelerated after three years of over 4-percent gross
domestic product (GDP) growth and an unprecedented credit explosion, prices
aren't likely to increase if growth slows and lenders get stingier.
More good news stems from the technological investment boom. While executives
have pared capital budgets in traditional areas such as industrial machinery and
buildings, they've boosted outlays on computers and software. Thanks to the
sheer force of technology spending, overall business investment has grown two to
four times as fast as GDP in every year since 1993. And that expansion should
continue, with more than 20 percent growth likely in high-tech through 2000 and
even beyond. And technology hurts inflation. It saves on labor and inventory,
increases capacity, creates new competitors, cuts out middlemen, gives shoppers
comparative price information and enables global auctions.
Our outlook is for inflation to stay centered around 2 percent, and we expect
a gentle slowing of growth from 4 percent in 1999 to around 3.5 percent in 2000
and just under 2.5 percent in 2001.
Despite this positive outlook, pre-Y2K fears were sufficient to show many
investors that risks still exist in today's markets and remind them that they
could be in for a serious hangover.
The prospect of sparkling growth with no inflation has excited equity
investors, but there's a catch: declining corporate pricing power. If companies
don't have the ability to increase prices, profit growth will decline -- and
it's already happening. For the five years ending in June 1999, S&P 500
operating earnings averaged 9 percent, two and a half percentage points per year
slower than analysts had predicted. Profits did recover strongly in the second
half of 1999, but we suspect that they will soon sputter again. And the
economy's newfound productivity won't change the rules and allow companies to
make money even if they can't raise prices. Productivity gains do produce a
windfall, but historically customers and employees have grabbed the lion's
share. Web sites and dot.coms haven't changed this one iota. As a result, we
expect profits to be virtually flat in all of 2000 and to decline as the economy
slows in 2001.
Debt is another drink that could bring on future headaches. America has been
swigging it in prodigious amounts. Companies have borrowed heavily to fund
mergers, share buybacks and new investments. Homeowners have increased their
debt with new home equity loans and bigger mortgages. Financial institutions
have issued record amounts of new paper to fund aggressive growth. There's no
hard and fast rule for determining if the debt America is
3
<PAGE> 4
- --------------------------------------------------------------------------------
ECONOMIC OVERVIEW
- --------------------------------------------------------------------------------
ECONOMIC GUIDEPOSTS
ECONOMIC ACTIVITY IS A KEY INFLUENCE ON INVESTMENT PERFORMANCE AND
SHAREHOLDER DECISION-MAKING. PERIODS OF RECESSION OR BOOM, INFLATION OR
DEFLATION, CREDIT EXPANSION OR CREDIT CRUNCH HAVE A SIGNIFICANT IMPACT ON
MUTUAL FUND PERFORMANCE.
THE FOLLOWING ARE SOME SIGNIFICANT ECONOMIC GUIDEPOSTS AND THEIR
INVESTMENT RATIONALE THAT MAY HELP YOUR INVESTMENT DECISION-MAKING. THE
10-YEAR TREASURY RATE AND THE PRIME RATE ARE PREVAILING INTEREST RATES.
THE OTHER DATA REPORT YEAR-TO-YEAR PERCENTAGE CHANGES.
[BAR GRAPH]
<TABLE>
<CAPTION>
NOW (1/31/00) 6 MONTHS AGO 1 YEAR AGO 2 YEARS AGO
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
10-year Treasury rate (1) 6.70 5.80 4.70 5.50
Prime rate (2) 8.50 7.75 7.75 8.50
Inflation rate (3)* 2.70 2.00 1.60 1.70
The U.S. dollar (4) 1.50 -2.2 -4.2 9.40
Capital goods orders (5)* 18.30 -0.2 10.60 6.50
Industrial production (5)* 5.00 3.90 2.40 6.70
Employment growth (6) 2.30 2.40 2.20 2.80
</TABLE>
(1) FALLING INTEREST RATES IN RECENT YEARS HAVE BEEN A BIG PLUS FOR FINANCIAL
ASSETS.
(2) THE INTEREST RATE THAT COMMERCIAL LENDERS CHARGE THEIR BEST BORROWERS.
(3) INFLATION REDUCES AN INVESTOR'S REAL RETURN. IN THE LAST FIVE YEARS,
INFLATION HAS BEEN AS HIGH AS 6 PERCENT. THE LOW, MODERATE INFLATION OF THE
LAST FEW YEARS HAS MEANT HIGH REAL RETURNS.
(4) CHANGES IN THE EXCHANGE VALUE OF THE DOLLAR IMPACT U.S. EXPORTERS AND THE
VALUE OF U.S. FIRMS' FOREIGN PROFITS.
(5) THESE INFLUENCE CORPORATE PROFITS AND EQUITY PERFORMANCE.
(6) AN INFLUENCE ON FAMILY INCOME AND RETAIL SALES.
*DATA AS OF 12/31/99.
SOURCE: ECONOMICS DEPARTMENT, SCUDDER KEMPER INVESTMENTS, INC.
taking on is too much, but warning bells should sound when debt grows by orders
of magnitude faster than necessary to fund economic activity. That happened in
1985 and 1986, when excess credit created a commercial real estate bubble and
funded dubious leveraged buyouts with suspect junk bonds, and it's happening
again now. Both the commercial real estate and the high yield markets took years
to recover. Today, the sheer size of the excesses could make the "morning after"
even more painful.
The end result: Given the continuing thrust of growth from the technological
revolution, an improving world economy and the Fed's experience and skill, 2000
could turn out to be a good year. But it's highly unlikely to be as good a year
as 1999.
Thank you for your continued support. We appreciate the opportunity to serve
your investment needs.
Sincerely,
Scudder Kemper Investments Economics Group
THE INFORMATION CONTAINED IN THIS PIECE HAS BEEN TAKEN FROM SOURCES BELIEVED TO
BE RELIABLE, BUT THE ACCURACY OF THE INFORMATION IS NOT GUARANTEED. THE OPINIONS
AND FORECASTS EXPRESSED ARE THOSE OF THE ECONOMIC ADVISORS OF SCUDDER KEMPER
INVESTMENTS, INC. AS OF MARCH 1, 2000, AND MAY NOT ACTUALLY COME TO PASS. THIS
INFORMATION IS SUBJECT TO CHANGE. NO PART OF THIS MATERIAL IS INTENDED AS AN
INVESTMENT RECOMMENDATION.
TO OBTAIN A KEMPER FUNDS PROSPECTUS, DOWNLOAD ONE FROM WWW.KEMPER.COM, TALK TO
YOUR FINANCIAL REPRESENTATIVE OR CALL SHAREHOLDER SERVICES AT (800) 621-1048.
THE PROSPECTUS CONTAINS MORE COMPLETE INFORMATION, INCLUDING MANAGEMENT FEES AND
EXPENSES. PLEASE READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
4
<PAGE> 5
PERFORMANCE UPDATE
LEAD PORTFOLIO MANAGER TRACY MCCORMICK PROVIDES AN
OVERVIEW OF THE STOCK MARKET DURING THE SEMIANNUAL
PERIOD. SHE ALSO DISCUSSES HER INVESTMENT
PHILOSOPHY, AND HOW SHE MANAGED KEMPER TARGET 2010
FUND DESPITE THE CHALLENGES OF A NARROW MARKET
CLIMATE.
Q FOR THE SIX MONTHS ENDING JANUARY 31, 2000, THE FUND EARNED 4.12 PERCENT
(UNADJUSTED FOR ANY SALES CHARGES). COULD YOU PUT THIS RETURN INTO CONTEXT FOR
US?
A We're pleased with the fund's performance. For the same period, the
Standard & Poor's 500 index gained 5.59 percent. This index -- an unmanaged pool
of large-cap stocks -- is often cited as a benchmark for the performance of the
market.
Q IF THE FUND GAINED LESS THAN THE INDEX, WHY AREN'T YOU DISAPPOINTED?
A That's a good question. Keep in mind that Kemper Target 2010 Fund invests
only a portion of its assets in stocks. Fixed-income securities, specifically
zero-coupon U.S. Treasury bonds, make up the remainder of the portfolio. These
bonds underpin the assured return of original investment (see page 7 for more
information on assurance). As a result, the portfolio won't participate fully in
stock market rallies. It's a classic example of the risk/reward trade-off.
But, even though the fund doesn't invest all of its assets in stocks, its
overall return was still competitive with the all-stock S&P 500. In fact, the
stock portion of the fund actually outperformed the S&P 500.
Q BEFORE YOU TALK MORE ABOUT THE FUND, COULD YOU DISCUSS THE MARKET CLIMATE?
WHAT TYPES OF INVESTMENTS PERFORMED PARTICULARLY WELL?
A By far, technology stocks were the markets' strongest performers during
the semiannual period. Although investors were anxious about the possible
consequences of year 2000, they were ultimately more attentive to the excellent
growth potential of the technology companies and the Internet. Media companies
also posted excellent gains. Many media companies benefited from a dramatic
inflow of advertising dollars from technology companies, particularly younger
Internet-oriented firms trying to establish name recognition within the
marketplace.
But, nonetheless, the overall market remained quite narrow. By "narrow," we
mean that only a few stocks enjoyed investor favor, while the majority
struggled. Financial services continued to languish. A rising-rate environment
took a toll on the group, and several disappointing developments among
individual banks cast a shadow of negative sentiment across the group.
The market became particularly anxious about potential health-care regulation
and legislation. With a presidential election coming up, health care becomes a
hot topic of debate and controversy, and the uncertainty takes a toll on the
stocks of the sector. Large-cap pharmaceutical stocks also faced a particularly
inhospitable climate. Also, instead of being viewed as a potential catalyst for
growth, the consolidation that occurred within the pharmaceutical group received
a lukewarm response from the market. Finally, slowing product pipelines didn't
improve the sentiment surrounding the group.
However, not all health care stumbled. A pocket of strong performance emerged
from the biotech group. Biotech companies aren't as hindered by the election
climate, and many offer excellent product pipelines.
[McCORMICK PHOTO]
TRACY MCCORMICK JOINED SCUDDER KEMPER INVESTMENTS, INC. IN 1994 AND SERVES AS A
MANAGING DIRECTOR. MCCORMICK RECEIVED BOTH HER BACHELOR OF ARTS AND HER MASTER
OF BUSINESS ADMINISTRATION DEGREES FROM MICHIGAN STATE UNIVERSITY. SHE
CONTRIBUTES MORE THAN 15 YEARS OF INVESTMENT INDUSTRY EXPERIENCE TO THE FUND.
[LANGBAUM PHOTO]
[DOLAN PHOTO]
PORTFOLIO MANAGERS GARY LANGBAUM AND SCOTT DOLAN ALSO CONTRIBUTE TO THE
MANAGEMENT OF THE FUND. LANGBAUM, A MANAGING DIRECTOR OF SCUDDER KEMPER
INVESTMENTS, JOINED THE ORGANIZATION IN 1988. HE IS A CHARTERED FINANCIAL
ANALYST WHO CONTRIBUTES MORE THAN 28 YEARS OF INDUSTRY EXPERIENCE TO THE FUND. A
SPECIALIST IN FIXED-INCOME INVESTING, SCOTT DOLAN IS A VICE PRESIDENT OF SCUDDER
KEMPER INVESTMENTS, HIS EMPLOYER SINCE 1989.
THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO MANAGERS ONLY
THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON THE COVER. THE
MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER
CONDITIONS.
5
<PAGE> 6
PERFORMANCE UPDATE
Q THE STOCK PORTION OF THE PORTFOLIO DID QUITE WELL DURING THE SEMIANNUAL
PERIOD. WITH ALL THE INFORMATION TO SORT THROUGH, COULD YOU TELL US HOW YOU
SELECT STOCKS?
A Well, to preface, not all information is equally valuable, and you have to
sift through plenty of rumors and a lot of wishful thinking. Ultimately,
successful stock selection is about the quality of information, and about using
the most relevant facts in the most appropriate way.
We apply a rigorous, growth-at-a-reasonable price discipline. We seek to
uncover quality large-cap stocks that are trading at attractive prices relative
to their growth potential. Intensive, proprietary research is key to our
process. We don't make our decisions based on the Wall Street crowd,
unsubstantiated rumors or wishful thinking. We evaluate companies' balance
sheets, management and product lines, as well as the industry trends and
competitive positioning. Here, our goal is to find a catalyst for excellent
long-term growth. These catalysts come from a variety of sources, including
innovative product developments, cost-cutting strategies and management changes,
to name just a few.
Our investment process is also grounded in discipline. That's true for both
our buy and sell strategies. When a stock reaches our preestablished price
targets or when we see signs of potential deterioration in fundamentals or
earnings growth, we begin to put an exit strategy into play.
Q COULD YOU GIVE US SOME EXAMPLES OF YOUR INVESTMENT DISCIPLINE IN ACTION?
A We purchased Motorola in early 1998 -- a point when the company received
little positive attention from the Wall Street crowd. We, however, used our
independent analysis to reach a different conclusion about the company. We're
impressed by the company's clarified focus on semiconductors, as well as by
forward-thinking management. Our analysis has been on track: Motorola has staged
a brisk -- and profitable -- turnaround, which continued through the semiannual
period. Today, the stock is one of our largest holdings. We see excellent
catalysts for continued growth, notably a solid positioning in new wireless data
applications. Oracle was another standout performer. We initiated our position
when the stock was unloved by Wall Street. We looked deeper and determined that
the company was extremely well positioned for the build-out of the Internet.
Here, too, our investment discipline was well rewarded.
Q YOU'VE MENTIONED THAT ZERO-COUPON U.S. TREASURY BONDS MAKE UP ABOUT HALF
OF THE PORTFOLIO. COULD YOU TELL US MORE ABOUT THEM?
A Zero-coupon bonds make no periodic payments of interest and are sold at a
deep discount to their face value. Instead of receiving periodic payments, the
buyer receives the face value of the bond at maturity. For U.S. Treasury bonds,
this payment is guaranteed.
However, although the payment is guaranteed, U.S. Treasury bonds can be quite
volatile prior to their maturity, particularly during periods of fluctuating
interest rates.
Q PREVIOUSLY, THE FUND HELD ABOUT 40 PERCENT OF ITS ASSETS IN ZERO-COUPON
BONDS, BUT NOW THESE BONDS MAKE UP MORE THAN HALF OF THE PORTFOLIO. WHY THE
CHANGE?
A To answer that question, let's quickly recap some operational changes that
occurred in November 1999. Prior to November 16, the portfolio was called Kemper
Retirement Fund Series I, and it had a maturity date of November 16, 1999. To
provide shareholders with the opportunity to continue investing with an assured-
offering, the fund was reorganized, with a new maturity date of November 15,
2010. (We renamed the fund, too!)
The extension of the fund's maturity date required us to establish a new
stock/bond allocation. As we noted earlier, zero-coupon bonds underpin the
assured return of original investment at maturity. Typically, zero-coupon bonds
carry lower price tags when interest rates are high. That's because the accrued
interest makes up the difference between the price at purchase and the face
value at maturity. Because interest rates are lower now than they were when the
fund was first established (as Kemper Retirement Fund Series I), we needed to
invest a larger percentage of assets in bonds in order to cover the assurance.
Q COULD YOU HIGHLIGHT SOME AREAS THAT WORKED OUT WELL FOR THE FUND?
A Technology and media stocks continued to contribute standout performance.
Our list of strong-performing technology stocks is quite long and diverse,
ranging from diverse semiconductors (Motorola) to software (Oracle) to computer
hardware (Hewlett-Packard) and networking (Cisco Systems).
Within our media holdings, stocks such as AT&T Liberty Media, CBS, Clear
Channel, Comcast and Infinity all benefited performance. As we mention in our
discussion of the market climate, media stocks benefited from a combination of
factors, including the strong consumer advertising market, buried
Internet-related assets, and various new media development.
Biotech holdings also contributed good gains. Here, the fund holds positions
in Amgen, Genentech and Biogen.
6
<PAGE> 7
PERFORMANCE UPDATE
Q WHAT HINDERED OVERALL PERFORMANCE?
A Exposure to the financial services sector hurt overall gains. As we noted,
interest-rate anxiety took a toll on the group. We had lightened up on more
rate-sensitive banks in favor of insurance companies and consumer financials.
Unfortunately, this repositioning didn't serve the fund well during the period
- -- the market pummeled these groups as well. We're not throwing in the towel,
however. For instance, we're finding insurance companies with good balance
sheets and increasing revenues. The valuations are excellent, and the prospects
for growth are compelling. We'll just need to be patient.
Exposure to large-cap pharmaceutical companies also clipped returns. We did
pare back many positions during the year, but in retrospect, we were not
aggressive enough. Among our sales, we eliminated our position in American Home
Products. We still believe that the company offers good partnership material in
a consolidating industry. Unfortunately, the litigation surrounding the diet
drug phen-fen has compressed the price of American Home Products' stock and
casts doubt as to whether the company's shareholders (including the fund) could
profit from a merger.
Q AS YOU MOVE FORWARD INTO THE SECOND HALF OF THE FISCAL YEAR, WHERE ARE YOU
FINDING OPPORTUNITIES?
A We continue to like media stocks. In fact, media stocks represent the
fund's biggest overweight relative to the S&P 500. We're also continuing to find
many attractive technology stocks. Certainly, the prices of many technology
stocks may seem high in absolute terms, but our analysis indicates that the
quality companies we own offer even stronger prospects for long-term earnings
growth. Within the technology sector, we've favored semiconductor and
semiconductor equipment stocks.
Wall Street has a generally negative view of financial services stocks, but
our analysis suggests that now may be a great time to build exposure -- while
valuations on quality stocks are especially attractive. Within the group, we're
most interested in insurance companies, as opposed to banks.
Also, an improving global economy and increasing oil prices bode well for
energy stocks. We've built positions in oil service companies, such as
Schlumberger and Trans Ocean.
Q TRACY, WE SAW PLENTY OF MARKET VOLATILITY DURING THE SEMIANNUAL PERIOD.
WILL INVESTORS BE ABLE TO BREATHE EASIER FOR THE REMAINDER OF 2000, OR WILL
VOLATILITY CONTINUE?
A Stocks will always bring ups and downs, so we encourage investors to keep
a long-term focus. No one can know what will happen next, particularly when it
comes to predicting what's in store for the stock market or economy. At best, we
can be prepared for continued volatility.
But, in our view, volatility isn't necessarily a bad thing. For example,
short-term volatility can open up excellent opportunities for the timely
purchase and sale of stocks. Rather than try to guess what will happen, we feel
that we add the most value by devoting ourselves to the analysis of individual
stock opportunities.
Finally, we'd emphasize the unique benefits that this fund offers --
particularly for more cautious investors. By combining an assured return of
original investment with the opportunity for capital appreciation, Kemper Target
2010 Fund provides a more sheltered way to participate in the stock market.
Shareholders just need to stay the course until the fund's maturity date and
reinvest all dividends. All in all, we think it's a great way to have your cake
and eat it, too!
IMPORTANT INFORMATION FOR SHAREHOLDERS
HOW THE ASSURANCE WORKS
Kemper Target 2010 Fund invests in a combination of U.S. government
zero-coupon bonds and equity securities, primarily growth stocks. If you hold
your shares to maturity (November 15, 2010) and reinvest all dividends, the
fund provides an assurance of your original investment at maturity, plus any
returns that the stocks in the portfolio may have earned. You may redeem your
investment on any business day at the then-current net asset value. Keep in
mind that shares redeemed prior to maturity do not benefit from this
assurance. Also, if you do not reinvest all dividends, this assurance does not
apply. Shares will fluctuate in value.
7
<PAGE> 8
LARGEST HOLDINGS
THE FUND'S 10 LARGEST STOCK HOLDINGS*
Representing 11.89 percent of the fund's total net assets on January 31, 2000
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
HOLDINGS PERCENT
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. CISCO SYSTEMS Large, comprehensive supplier of 2.00%
routing software and related
systems that direct the flow of
data between local networks and
the Internet.
- --------------------------------------------------------------------------------------
2. MICROSOFT Develops, markets and supports a 1.73%
variety of software, operating
systems, Internet services, and
language and application programs.
- --------------------------------------------------------------------------------------
3. GENERAL ELECTRIC A broadly diversified company with 1.64%
major businesses in power
generators, appliances, lighting,
plastics, medical systems,
aircraft engines, financial
services and broadcasting.
- --------------------------------------------------------------------------------------
4. INTEL Designs, develops, manufactures 1.25%
and sells advanced microcomputer
components, such as
semiconductors.
- --------------------------------------------------------------------------------------
5. HEWLETT-PACKARD Large supplier of enterprise 0.98%
computer systems, including
low-cost printers and personal
computers.
- --------------------------------------------------------------------------------------
6. EXXON MOBIL Engaged in the exploration, 0.89%
production, manufacture,
transportation and sale of oil,
natural gas and petroleum
products.
- --------------------------------------------------------------------------------------
7. ORACLE A leading global provider of 0.87%
database management software.
- --------------------------------------------------------------------------------------
8. MOTOROLA Manufactures components, notably 0.86%
semiconductors and wireless
communications equipment.
- --------------------------------------------------------------------------------------
9. LINEAR TECHNOLOGY Designs, manufactures and markets 0.84%
integrated circuits for a variety
of products, including
telecommunications equipment,
computers, satellites and
automotive systems.
- --------------------------------------------------------------------------------------
10. TARGET Operates more than 1,000 stores 0.83%
under the names Target, Mervyn's,
Dayton-Hudson and Marshall
Field's.
- --------------------------------------------------------------------------------------
</TABLE>
*The fund's holdings are subject to change.
8
<PAGE> 9
PORTFOLIO OF INVESTMENTS
KEMPER TARGET EQUITY 2010
Portfolio of Investments Semiannual ended January 31, 2000
(unaudited)
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS--1.3% AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Xerox Capital (Europe) PLC, 5.544% 02/04/2000**
(Cost $999,538) $1,000,000 $ 999,538
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCIES--52.0%
- -----------------------------------------------------------------------------------------------------------------------
U.S. Treasury Separate Trading Registered
Interest and Principal Securities,
11/15/2010, 6.33%*** (Cost $43,379,107) 85,000,000 41,279,400
-----------------------------------------------------------------------------
NUMBER OF
COMMON STOCKS--46.7% SHARES VALUE
CONSUMER DISCRETIONARY--3.6% Federated Department Stores, Inc.* 5,000 208,125
DEPARTMENT & Home Depot, Inc. 8,250 467,156
CHAIN STORES--2.5% Target Corp. 10,000 658,750
Wal-Mart Stores, Inc. 12,000 657,000
-----------------------------------------------------------------------------
1,991,031
HOTELS & CASINOS--0.5% Carnival Corp. "A" 8,000 360,500
-----------------------------------------------------------------------------
SPECIALTY RETAIL--0.6% Tandy Corp. 10,000 488,750
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--2.4% Bestfoods 5,750 250,125
FOOD & BEVERAGE--1.3% H.J. Heinz Co. 6,000 223,125
PepsiCo, Inc. 16,750 571,594
-----------------------------------------------------------------------------
1,044,844
PACKAGE GOODS/ COSMETICS--1.1% Colgate-Palmolive Co. 4,000 237,000
Procter & Gamble Co. 6,500 655,688
-----------------------------------------------------------------------------
892,688
- -----------------------------------------------------------------------------------------------------------------------
HEALTH--4.9% Amgen, Inc.* 5,000 318,438
BIOTECHNOLOGY--1.2% Biogen, Inc.* 3,375 291,094
Genentech, Inc.* 2,400 337,200
-----------------------------------------------------------------------------
946,732
MEDICAL SUPPLY & SPECIALTY--0.5% Baxter International, Inc. 6,000 383,250
-----------------------------------------------------------------------------
PHARMACEUTICALS--3.2% Allergan, Inc. 6,200 353,400
Bristol-Myers Squibb Co. 4,650 306,900
Forest Laboratories, Inc.* 4,000 270,000
Johnson & Johnson 4,000 344,250
Merck & Co., Inc. 8,000 630,500
Pfizer, Inc. 6,000 218,250
Warner-Lambert Co. 4,500 427,219
-----------------------------------------------------------------------------
2,550,519
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE> 10
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMUNICATIONS--3.9% Vodafone Group PLC (ADR) 3,500 $ 196,000
CELLULAR TELEPHONE--0.3% -----------------------------------------------------------------------------
TELEPHONE/ COMMUNICATIONS--3.6% AT&T Corp. 8,750 461,563
Bell Atlantic Corp. 8,750 541,953
BroadWing, Inc. 12,000 456,000
Global Crossing Ltd.* 6,150 312,113
MCI WorldCom, Inc.* 9,750 447,891
Qwest Communications International Inc.* 8,000 315,000
SBC Communications, Inc. 8,364 360,698
-----------------------------------------------------------------------------
2,895,218
- -----------------------------------------------------------------------------------------------------------------------
FINANCIAL--5.7% Chase Manhattan Corp. 2,500 201,094
BANKS--0.7% First Tennessee National Corp. 5,500 143,688
Wells Fargo Co. 5,000 200,000
-----------------------------------------------------------------------------
544,782
CONSUMER FINANCE--2.3% American Express Co. 2,750 453,234
Capital One Finance Corp. 7,500 307,500
Citigroup, Inc. 10,750 617,453
Household International, Inc. 11,946 421,097
-----------------------------------------------------------------------------
1,799,284
INSURANCE--2.2% American International Group, Inc. 5,450 567,481
Aon Corp. 12,000 310,500
Cigna Corp. 4,000 287,000
Jefferson Pilot Corp. 5,500 323,125
St. Paul Companies, Inc. 10,000 301,875
-----------------------------------------------------------------------------
1,789,981
OTHER FINANCIAL COMPANIES--0.5% Marsh & McLennan Companies, Inc. 4,500 423,000
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MEDIA--4.1% Young & Rubicam, Inc. 4,150 223,581
ADVERTISING--0.3% -----------------------------------------------------------------------------
BROADCASTING & CBS Corp. 8,950 521,897
ENTERTAINMENT--2.3% Clear Channel Communications, Inc.* 3,543 306,027
Infinity Broadcasting Corp.* 8,450 274,625
Univision Communication, Inc.* 4,250 455,281
Walt Disney Co. 7,000 254,188
-----------------------------------------------------------------------------
1,812,018
CABLE TELEVISION--1.5% AT&T Corp--Liberty Media Group* 8,000 409,000
Comcast Corp. "A" 10,000 460,000
Media One Group, Inc.* 4,000 318,000
-----------------------------------------------------------------------------
1,187,000
PRINT MEDIA--0.0% Tribune Co. 100 4,219
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE> 11
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE INDUSTRIES--2.5% Automatic Data Processing, Inc. 7,250 $ 343,922
EDP SERVICES--1.5% Electronic Data Systems Corp. 9,000 608,625
First Data Corp. 5,000 245,313
-----------------------------------------------------------------------------
1,197,860
ENVIRONMENTAL SERVICES--0.2% Transocean Sedo Forex, Inc. 5,548 176,496
-----------------------------------------------------------------------------
INVESTMENT--0.3% Merrill Lynch & Co., Inc. 2,500 216,875
-----------------------------------------------------------------------------
PRINTING/PUBLISHING--0.5% McGraw-Hill, Inc. 7,600 426,075
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
DURABLES--0.8% United Technologies Corp. 12,000 635,250
AEROSPACE -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.9% E.I. du Pont de Nemours & Co. 5,500 324,500
CHEMICALS--0.6% Praxair, Inc. 4,000 162,250
-----------------------------------------------------------------------------
486,750
DIVERSIFIED MANUFACTURING--0.6% Tyco International Ltd. 12,098 517,190
-----------------------------------------------------------------------------
ELECTRICAL PRODUCTS--1.8% Emerson Electric Co. 2,450 134,903
General Electric Co. 9,750 1,300,398
-----------------------------------------------------------------------------
1,435,301
MACHINERY/ COMPONENTS--0.4% Parker-Hannifin Corp. 7,000 302,750
-----------------------------------------------------------------------------
OFFICE EQUIPMENT/ SUPPLIES--0.5% Lexmark International Group, Inc. "A"* 4,000 377,000
-----------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--12.3% Intuit, Inc. 3,500 211,094
COMPUTER SOFTWARE--2.9% Microsoft Corp.* 14,000 1,370,250
Oracle Corp.* 13,800 689,353
-----------------------------------------------------------------------------
2,270,697
DIVERSE ELECTRONIC Applied Materials, Inc.* 4,000 549,000
PRODUCTS--2.5% Motorola, Inc. 5,000 683,750
Solectron Corp.* 6,000 435,750
Teradyne, Inc.* 5,750 372,313
-----------------------------------------------------------------------------
2,040,813
ELECTRONIC COMPONENTS--2.3% Altera Corp.* 3,500 230,125
Cisco Systems, Inc.* 14,500 1,587,750
-----------------------------------------------------------------------------
1,817,875
ELECTRONIC DATA PROCESSING--1.7% Hewlett-Packard Co. 7,150 773,988
Sun Microsystems, Inc.* 7,000 549,938
-----------------------------------------------------------------------------
1,323,926
SEMICONDUCTORS--2.4% Intel Corp. 10,000 989,375
Linear Technology Corp. 7,000 662,813
Xilinx, Inc.* 6,000 274,500
-----------------------------------------------------------------------------
1,926,688
MISCELLANEOUS--0.5% Agilent Technologies, Inc.* 6,000 397,125
-----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE> 12
PORTFOLIO OF INVESTMENTS
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ENERGY--2.6% Conoco, Inc. "A" 7,200 $ 167,850
OIL & GAS PRODUCTION--0.8% Royal Dutch Petroleum Co. (New York shares) 8,500 468,031
-----------------------------------------------------------------------------
635,881
OIL COMPANIES--1.2% Exxon Mobil Corp. 8,488 708,748
Texaco, Inc. 4,250 224,719
-----------------------------------------------------------------------------
933,467
OILFIELD SERVICES--0.6% Schlumberger Ltd. 8,000 488,500
-----------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost $28,088,344) 37,139,916
-----------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO--100%
(Cost $72,466,989)(a) $79,418,854
-----------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
NOTES TO PORTFOLIO OF INVESTMENTS
- -------------------------------------------------------------------------------
* Non-income producing security
** Annualized yield at time of purchase; not a coupon rate.
*** Bond equivalent yield to maturity; not a coupon rate.
(a) The cost for federal income tax purposes was $72,468,989. At January 31,
2000, net unrealized appreciation for all securities bases on tax cost
was $6,949,865. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of value over tax cost of
$9,964,929 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value of $3,015,064.
The accompanying notes are an integral part of the financial statements.
12
<PAGE> 13
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000
(Unaudited)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
ASSETS
- ---------------------------------------------------------------------------
Investments in securities, at value,
(cost $72,466,989) $79,418,854
- ---------------------------------------------------------------------------
Receivable for investments sold 158,945
- ---------------------------------------------------------------------------
Dividends receivable 15,394
- ---------------------------------------------------------------------------
Receivable for Fund shares sold 113,390
- ---------------------------------------------------------------------------
Foreign taxes recoverable 4,284
- ---------------------------------------------------------------------------
Other assets 5,000
- ---------------------------------------------------------------------------
TOTAL ASSETS 79,715,867
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
LIABILITIES
- ---------------------------------------------------------------------------
Due to custodian bank 6,323
- ---------------------------------------------------------------------------
Payable for investments purchased 151,121
- ---------------------------------------------------------------------------
Payable for Fund shares redeemed 106,048
- ---------------------------------------------------------------------------
Accrued management fee 33,500
- ---------------------------------------------------------------------------
Other accrued expenses 112,357
- ---------------------------------------------------------------------------
Total liabilities 409,349
- ---------------------------------------------------------------------------
NET ASSETS, AT VALUE $79,306,518
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income (loss) $ 64,886
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
securities 6,951,865
- ---------------------------------------------------------------------------
Accumulated net realized gain (loss) 11,579,806
- ---------------------------------------------------------------------------
Paid-in capital 60,709,961
- ---------------------------------------------------------------------------
NET ASSETS, AT VALUE $79,306,518
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
NET ASSET VALUE AND OFFERING PRICE
- ---------------------------------------------------------------------------
NET ASSET VALUE, AND REDEMPTION PRICE PER SHARE
($79,306,518 / 7,484,896 shares of capital stock
outstanding $.01 par value, unlimited number of shares
authorized) $10.60
- ---------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE (100/95.00 of $10.60) $11.16
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE> 14
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
Six months ended January 31, 2000
(Unaudited)
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME
- ---------------------------------------------------------------------------
Dividends (net of foreign taxes withheld of $1,974) $ 231,222
- ---------------------------------------------------------------------------
Interest 1,566,472
- ---------------------------------------------------------------------------
Total income 1,797,694
- ---------------------------------------------------------------------------
Expenses:
Management fee 233,745
- ---------------------------------------------------------------------------
Services to shareholders 74,357
- ---------------------------------------------------------------------------
Custodian and accounting fees 3,391
- ---------------------------------------------------------------------------
Administrative service fees 116,873
- ---------------------------------------------------------------------------
Auditing 10,991
- ---------------------------------------------------------------------------
Legal 8,653
- ---------------------------------------------------------------------------
Trustees' fees and expenses 11,500
- ---------------------------------------------------------------------------
Reports to shareholders 15,395
- ---------------------------------------------------------------------------
Other 1,250
- ---------------------------------------------------------------------------
Total expenses, before expense reductions 476,155
- ---------------------------------------------------------------------------
Expense reductions (3,196)
- ---------------------------------------------------------------------------
Total expenses, after expense reductions 472,959
- ---------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 1,324,735
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ---------------------------------------------------------------------------
Net realized gain (loss) from:
Investments 11,607,081
- ---------------------------------------------------------------------------
Foreign currency related transactions 21
- ---------------------------------------------------------------------------
11,607,102
- ---------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during the period
on investments (8,810,361)
- ---------------------------------------------------------------------------
Net gain (loss) on investment transactions 2,796,741
- ---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 4,121,476
- ---------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE> 15
FINANCIAL STATEMENTS
STATEMENT OF CHANGES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
JANUARY 31, ENDED
2000 JULY 31,
(UNAUDITED) 1999
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
OPERATIONS
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) $ 1,324,735 3,188,826
- ----------------------------------------------------------------------------------------------------
Net realized gain (loss) 11,607,102 3,803,251
- ----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment
transaction (8,810,361) 6,413,223
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 4,121,476 13,405,300
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (3,098,754) (3,552,923)
- ----------------------------------------------------------------------------------------------------
From net realized gains (3,826,462) (7,757,515)
- ----------------------------------------------------------------------------------------------------
Fund share transactions:
Proceeds from shares sold 2,044,136 --
- ----------------------------------------------------------------------------------------------------
Reinvestment of distributions 6,651,384 11,811,609
- ----------------------------------------------------------------------------------------------------
Cost of shares redeemed (30,610,246) (16,220,964)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (21,914,726) (4,409,355)
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (24,718,466) (2,314,493)
- ----------------------------------------------------------------------------------------------------
Net assets at beginning of period 104,024,984 106,339,477
- ----------------------------------------------------------------------------------------------------
NET ASSETS AT END OF PERIOD (including undistributed net
investment income (loss) of $64,886 and $1,838,905,
respectively) $ 79,306,518 104,024,984
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
OTHER INFORMATION
- ----------------------------------------------------------------------------------------------------
Shares outstanding at beginning of period 9,494,566 9,845,043
- ----------------------------------------------------------------------------------------------------
Shares sold 191,211 --
- ----------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment of
distributions 648,679 1,177,722
- ----------------------------------------------------------------------------------------------------
Shares redeemed (2,849,560) (1,528,199)
- ----------------------------------------------------------------------------------------------------
Net decrease in Fund shares (2,009,670) (350,477)
- ----------------------------------------------------------------------------------------------------
SHARES OUTSTANDING AT END OF PERIOD 7,484,896 9,494,566
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE> 16
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED MONTH
JANUARY 31, JULY 31, ENDED YEAR ENDED JUNE 30,
2000 ----------------- JULY 31, ---------------------------
(UNAUDITED) 1999 1998 1997 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.96 10.80 11.86 11.24 11.46 11.19 10.67
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) .15(a) .32(a) .40 .03 .42 .44 .45
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions .28 1.05 .25 .59 1.48 1.03 1.20
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations .43 1.37 .65 .62 1.90 1.47 1.65
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.38) (.42) -- (.44) (.44) (.41)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gains on investment transactions (.43) (.83) (1.29) -- (1.68) (.76) (.72)
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (.79) (1.21) (1.71) -- (2.12) (1.20) (1.13)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period 10.60 10.96 10.80 11.86 11.24 11.46 11.19
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (%) 4.12** 13.75 6.56 5.52** 18.43 13.91 17.03
- -----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ in thousands) 79,307 104,025 106,339 117,117 111,810 107,303 106,482
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses before expense reductions (%) 1.02* 1.00 .94 .84* .93 .95 .97
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of expenses after expense reductions (%) 1.01* 1.00 .94 .84* .93 .95 .97
- -----------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) (%) 2.83* 3.06 3.30 3.38* 3.60 3.68 3.96
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 197* 52 80 86* 94 71 63
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
* Annualized
** Not Annualized
(a) Based on monthly average shares outstanding during the period.
(b) Total return does not reflect the effect of sales charges.
On July 12, 1999, the Fund's Board of Trustees elected to continue operation of
the Fund after the original November 15, 1999 maturity date with a new maturity
date of November 15, 2010.
The accompanying notes are an integral part of the financial statements.
16
<PAGE> 17
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT
ACCOUNTING POLICIES Kemper Target 2010 Fund (formerly called Kemper
Retirement Fund Series I), (the "Fund") is a
diversified series of Kemper Target Equity Fund
(the "Trust"), which is registered under the
Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment
company, organized as a Massachusetts business
trust. The objective of the Fund is to provide a
guaranteed return of investment on the Maturity
Date (November 15, 2010) to investors who reinvest
all dividends and hold their shares to the Maturity
Date, and to provide long-term growth of capital.
On July 12, 1999, the Fund's Board of Trustees
elected to continue operation of the Fund after the
original November 15, 1999 maturity date with a new
maturity date of November 15, 2010. The Board of
Trustees also approved the offering of shares of
the Fund for a new limited offering period
commencing on November 15, 1999 and ending on or
about August 15, 2000.
The assurance that investors who reinvest all
dividends and hold their shares until the Maturity
Date will receive at least their original
investment on the Maturity Date is provided by the
principal amount of the zero coupon U.S. Treasury
obligations in the Fund's portfolio. This assurance
is further backed by an agreement entered into by
Scudder Kemper Investments, Inc., the Fund's
investment manager. Fund shares are sold during a
limited offering period, and are redeemable on a
continuous basis.
The Fund's financial statements are prepared in
accordance with generally accepted accounting
principals, which require the use of management
estimates. The policies described below are
followed consistently by the Fund in the
preparation of their financial statements.
SECURITY VALUATION. Investments are stated at value
determined as of the close of regular trading on
the New York Stock Exchange. Securities, which are
traded on U.S. or foreign stock exchanges, are
valued at the most recent sale price reported on
the exchange on which the security is traded most
extensively. If no sale occurred, the security is
then valued at the calculated mean between the most
recent bid and asked quotations. If there are no
such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq
Stock Market ("Nasdaq"), for which there have been
sales, are valued at the most recent sale price
reported. If there are no such sales, the value is
the most recent bid quotation. Securities, which
are not quoted on Nasdaq but are traded in another
over-the-counter market are valued at the most
recent sale price, or if no sale occurred, at the
calculated mean between the most recent bid and
asked quotations on such market. If there are no
such bid and asked quotations, the most recent bid
quotation shall be used.
Portfolio debt securities purchased with an
original maturity greater than sixty days are
valued by pricing agents approved by the officers
of the Trust, whose quotations reflect
broker/dealer-supplied valuations and electronic
data processing techniques. If the pricing agents
are unable to provide such quotations, the most
recent bid quotation supplied by a bona fide market
maker shall be used. Money market instruments
purchased with an original maturity of sixty days
or less are valued at amortized cost.
All other securities are valued at their fair value
as determined in good faith by the Valuation
Committee of the Board of Trustees.
17
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
FOREIGN CURRENCY TRANSLATIONS. The books and
records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and
liabilities denominated in a foreign currency are
translated into U.S. dollars at the prevailing
exchange rates at period end. Purchases and sales
of investment securities, income and expenses are
translated into U.S. dollars at the prevailing
exchange rates on the respective dates of the
transactions.
Net realized and unrealized gains and losses on
foreign currency transactions represent net gains
and losses between trade and settlement dates on
securities transactions, the disposition of forward
foreign currency exchange contracts and foreign
currencies, and the difference between the amount
of net investment income accrued and the U.S.
dollar amount actually received. That portion of
both realized and unrealized gains and losses on
investments that results from fluctuations in
foreign currency exchange rates is not separately
disclosed but is included with net realized and
unrealized gains and losses on investment
securities.
REPURCHASE AGREEMENTS. The Fund may enter into
repurchase agreements with certain banks and
broker/dealers whereby the Fund, through its
custodian or sub-custodian bank, receives delivery
of the underlying securities, the amount of which
at the time of purchase and each subsequent
business day is required to be maintained at such a
level that the market value is equal to at least
the principal amount of the repurchase price plus
accrued interest.
FEDERAL INCOME TAXES. The Fund's policy is to
comply with the requirements of the Internal
Revenue Code, as amended, which are applicable to
regulated investment companies and to distribute
all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes
and no federal income tax provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of
net investment income, if any, are made annually.
Net realized gains from investment transactions, in
excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed,
and, therefore, will be distributed to shareholders
at least annually.
The timing and characterization of certain income
and capital gains distributions are determined
annually in accordance with federal tax regulations
which may differ from generally accepted accounting
principles.
INVESTMENT TRANSACTIONS AND INVESTMENT
INCOME. Investment transactions are accounted for
on the trade date. Interest income is recorded on
the accrual basis. Dividend income is recorded on
the ex-dividend date. Certain dividends from
foreign securities may be recorded subsequent to
the ex-dividend date as soon as the Fund is
informed of such dividends. Realized gains and
losses from investment transactions are recorded on
an identified cost basis. All discounts are
accreted for both tax and financial reporting
purposes.
EXPENSES. Expenses arising in connection with a
specific Fund are allocated to that Fund. Other
Trust expenses are allocated between the Funds in
proportion to their relative net assets.
- --------------------------------------------------------------------------------
2 PURCHASES AND
SALES OF SECURITIES For the six months ended January 31, 2000,
investment transactions (excluding short-term
instruments) are as follows:
Purchases $68,481,925
Proceeds from sales 94,765,405
18
<PAGE> 19
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3 TRANSACTIONS
WITH AFFILIATES MANAGEMENT AGREEMENT. The Fund has a management
agreement with Scudder Kemper Investments, Inc.
(Scudder Kemper). The Fund pays a monthly
investment management fee of 1/12 of the annual
rate of .50% of average daily net assets. The Fund
incurred a management fee of $233,745 for the six
months ended January 31, 2000.
UNDERWRITING AGREEMENT. The Trust has an
underwriting agreement with Kemper Distributors,
Inc. (KDI). Underwriting commissions retained by
KDI in connection with the distribution of the
fund's shares for the six months ended January 31,
2000 are $23,115.
ADMINISTRATIVE SERVICES AGREEMENT. The Trust has an
administrative services agreement with Kemper
Distributors, Inc. (KDI). For providing information
and administrative services to shareholders, the
Fund pays KDI a fee at an annual rate of up to .25%
of average daily net assets. KDI in turn has
various agreements with financial services firms
that provided these services and pays these firms
based on assets of fund accounts the firms service.
Administrative services fees paid by the Fund to
KDI for the six months ended January 31, 2000 are
$116,873, of which $16,500 is unpaid.
SHAREHOLDER SERVICES AGREEMENT. Pursuant to a
services agreement with the Fund's transfer agent,
Kemper Service Company (KSvC) is the shareholder
service agent of the Fund. Under the agreement,
KSvC received shareholder services fees of $58,719
for the six months ended January 31, 2000 of which
$13,000 is unpaid.
OFFICERS AND TRUSTEES. Certain officers or trustees
of the Fund are also officers or directors of
Scudder Kemper. For the six months ended January
31, 2000, the Fund made no payments to its officers
and incurred trustees' fees of $11,500 to
independent trustees.
- --------------------------------------------------------------------------------
4 EXPENSE OFF-SET
ARRANGEMENTS The Fund has entered into arrangements with its
custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a
portion of the Fund's expenses. During the period,
the Fund's custodian fees were reduced by $3,196
under these arrangements.
19
<PAGE> 20
TRUSTEES&OFFICERS
<TABLE>
<S> <C> <C>
TRUSTEES OFFICERS
JAMES E. AKINS MARK S. CASADY WILLIAM F. TRUSCOTT
Trustee President Vice President
JAMES R. EDGAR PHILIP J. COLLORA LINDA J. WONDRACK
Trustee Vice President and Vice President
Secretary
ARTHUR R. GOTTSCHALK MAUREEN E. KANE
Trustee JOHN R. HEBBLE Assistant Secretary
Treasurer
FREDERICK T. KELSEY CAROLINE PEARSON
Trustee IRENE CHENG Assistant Secretary
Vice President
THOMAS W. LITTAUER
Chairman, Trustee and Vice TRACY MCCORMICK BRENDA LYONS
President Vice President Assistant Treasurer
FRED B. RENWICK ANN M. MCCREARY
Trustee Vice President
JOHN G. WEITHERS KATHRYN L. QUIRK
Trustee Vice President
</TABLE>
<TABLE>
<S> <C>
.............................................................................................
LEGAL COUNSEL VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 North LaSalle Street
Chicago, IL 60601
.............................................................................................
SHAREHOLDER KEMPER SERVICE COMPANY
SERVICE AGENT P.O. Box 219557
Kansas City, MO 64121
.............................................................................................
TRANSFER AGENT INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania Avenue
Kansas City, MO 64105
.............................................................................................
CUSTODIAN STATE STREET BANK AND TRUST
225 Franklin Street
Boston, MA 02110
.............................................................................................
INDEPENDENT AUDITORS ERNST & YOUNG LLP
233 South Wacker Drive
Chicago, IL 60606
.............................................................................................
PRINCIPAL UNDERWRITER KEMPER DISTRIBUTORS, INC.
222 South Riverside Plaza Chicago, IL 60606
www.kemper.com
</TABLE>
[KEMPER FUNDS LOGO]
Long-term investing in a short-term world(SM)
Printed on recycled paper in the U.S.A.
This report is not to be distributed
unless preceded or accompanied by a
Kemper Target 2010 Fund prospectus.
KTEF - 3 (3/25/00) 1105630
